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tv   Capital News Today  CSPAN  February 2, 2010 11:00pm-2:00am EST

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boeing and our principal teammate bigelow aerospace are looking forward to advancing the state of our projects. ..
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we've been involved in every human space exploration program that was executed by the usa. we have a vested interest of course in the international space station being the prime teammate on that and we so much want to see iss live up to its potential and part of the setting robust logistics training with the delivery of cargo and crew in order to complete the research that will be enabled on the international space station. we've been in the game along time with our team meet we intend to be for a long time more. thank you for the opportunity. >> thank you. good morning, everybody. i know that that debate, i certainly have a lot of cheering
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staff excited about this moment. we have invested in and are developing with nasa technologies for use on the international space station, on the moon, on the mars and a whole array of settings, applications in space. the revitalization system we are developing under this program is one of its first of its kind because it will be a time key system that can be used on an array of missions on a pretty much any spacecraft so we are looking forward to working with the spacecraft developers making sure it fits their needs. i also wanted to say that of course at paragon we are committed to the development of human exploration but in a commercial way of course over the years paragon has been
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involved in the commercial development of space from the inception, from inside biosphere, the first regenerative life-support system by life system developed. we have the very first commercial experiment on the international space station which was exciting for us. and we are incredibly proud to be here and to be part of the nation's space program. thank you very much. >> good morning. i am mark from the nevado corporation on behalf of the 2,000 or so employees of the company i would like to say thank you to nasa for all the work that's gone into this program. we've been on 500 space missions of an organization and what we've learned there is space is hard, this is not an easy thing
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to do and takes a lot of effort and cooperation and teamwork and have a great group of companies involved in the program. one of the things i would like to say is we had the experience coming three in on funded space agreement with nasa the last two years which was a rather unusual vehicle that i think worked very well and we have received tremendous support from the team at the organization throughout the nasa agency and as a result of that we have now advanced our program to be a very successful in our view very successful start. our program is based on a nasa vehicle that was originated many years ago called the hl20 lifting body concept. we brought the concept for work and are very thrilled to be part of this group and be able to move that idea to the next level. thank you very much. >> good morning. i'm dave thompson chairman and chief execute officer of orbital sciences corporation but to friends and i started 28 years ago to develop the full
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commercial potential space with the perspective of about three decades in this business my judgment is during its first term at that the obama administration headed out of the park with its proposal for nasa's new approach to the civil space program. this new approach which represents the most dramatic change in our civil space activity and the least the last 20 years is very consistent with what we've seen both in this country and around the world over the past several decades. an increased reliance on an ever more capable private-sector in this case to deliver people to and from low earth orbit. this is an area that across a variety of applications ranging from satellite communications to
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space imagery collection orbital haute launch services and now commercial cargo delivery to the space station already represents an annual investment of about $5 billion a year by the u.s. government and other governments in space fairing countries, and europe, asia and elsewhere. so it seems like this is the right time. this is the right direction for the agency to take in this new era. one of the reasons i am confident the private sector is up to the challenges that are ahead of us in this new era of commercial astronaut taxi services to and from a low earth orbit is because of the progress that we've made over the last couple of years in developing a private cargo transportation system for the international space station. two of these systems will make
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the first flights to the station within the next year and i think that will pave the way not too many years later for the first launch of astronauts to the low earth orbit. these challenges are ones that we welcome and i would also in addition to this new element of nasa's program, the obama administration and the space agency for strengthening our scientific programs that nasa carries out. most of you that have studied the budget will note about 30% increase in the budget for the nasa science programs over the next five years and almost twice that much, about 60% increase in the agency's proposed spending on earth science which i think is one of the most important areas that nasa carries out. >> thank you for a match.
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im kenneth bowers. i am representing the spacex. we have a construction facility in hall for california and two sites one in the marshall islands and a site and florida. but on -- one of the exciting things to me about the nasa budget is has one of the barriers to space and of that barrier is how you pay for it. one of the things you have to work to fix that issue is the relationships between the government and the contractors that provide the services. the government hopefully will set the destination. the contractors with their flexibility and creativity should be able to come up with new and innovative ways to get the job done. how work has had the privilege
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working with nasa in partnership agreement since 2006 to provide cargo services to the international space station and i can tell you from firsthand experience that it is a really great thing to watch what happens when you plant the skills only available in the government with flexibility and creativity in the industry. >> folks, if we could do one thing -- yes, absolutely, get one great shot. this is the face, these are the faces of the new space frontier folks. [applause] [applause]
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[inaudible conversations] >> thanks to all of you who have come out today. in spite of the fact this is probably the wrong thing to say i think i'm ready for questions. [laughter] >> thank you very much. please identify yourself and the organization you are representing, and please it's only for journalists. please. yes. >> kenneth from new york times. the budget is asking for $18 billion over five years for
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research. what is a lot of money to ask for when you don't have a specific goal. do you have a destination timetable where you want to send astronauts and if not, when do you think he will come up with a timetable when you tie the technology into an architecture destination and timetable? is it a couple of weeks, next year? >> it's more than a couple of weeks but it's less than years. we already are starting a former tiger teams that will help come up with a schedule for how we are going to go about developing a new and bold plan for exploration. if you ask me about destinations i get in trouble when i see it but i will tell you any way anybody who talks about exploration beyond earth orbit there are some places that come to mind, the moon, mars, asteroids, other year-earth objects so those are the definite destinations. i have laid over here who is one
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of my executives keeps reminding the volume limiting when i talk about soyuz instead of places like the solar system but i am talking about in my lifetime, so i will limit to mars, melancon asteroids and stuff like that and we hope soon to be about to get a definitive time schedule on which we hope to reach some of these destinations. i will tell you right now as we are talking about today with the people we are honoring and as i talked to them they were asking what can we do to help, and i said the number one thing that we all can do is pull together, work together and make sure we deliver things on schedule, meet our milestones and make sure we come in on the cost we said because that is what is quite a different and i can't diver that then you ought to throw me out.
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>> general bolden, following on that coming due to yesterday's budget announcements to make a lot of talk about the in orbit fuelling. i know it's still early. are you looking at primarily when the new type of vehicles and launching from a space station or someplace in orbits wherever your going is that sort of the primary role or are you looking at more the traditional from earth? >> when you talk about the orbit refueling this is a question we've talked about internally among ourselves. we are talking about going from a space station to some other place in the solar system. we are talking about being able to launch with a lighter vehicles than we would otherwise be required because if you think about it, the reason for the weight and the size of a lot of vehicles is getting out of the gravity well. if we have a place we can go once we get out of the gravity well refuel it means you don't have to have the complex heavy
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cost the vehicles we have today. so that is one thing. i would ask you don't be misguided by our desire to have on orbit refueling sites. that implies hydrocarbon and other types of propulsion systems. when i talk about the game and changing propulsion we are talking about going back to stuff nasa has on the shelf and commercial partners have on the shelf whether it is engines all these other kind of things you all know better than i do and you know they are going to bring arguments in the coming months because if you are a fan then you don't like on. if you are and on and and you don't like vasmer. i've had people say don't say it's exciting one more time but i will tell you what is exciting is we are now going to have the national debate about where we should be doing in terms of space exploration, and scientists and engineers who haven't had the opportunity
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perhaps in the last decade or more to have these discussions in public are going to have them i hope if we do nothing but facilitate public discussion on where we should be going and how we go there and we will have accomplished a lot. >> i am a press club member. the announcement from the president has been greeted with dismay in some areas that we are abandoning, manned spaceflight that we are living it to the chinese perhaps the indians and others, other nations to take the lead in exporting our solar system. how do you respond to that when we were the nation that was in the forefront and did land men
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on the moon? what do you say to those people? >> we are still the nation in the forefront. we are still the nation to which everyone looks and with whom everyone wants to partner. as i travel around the world, that message comes through loud and clear from all of our international partners. if i go back to say people think we are turning away from human spaceflight, i will share with you a story that i got from jeff this morning with the program manager for the constellation program and he had gotten the message from a little girl he had actually said my adopted and invited her family to the areas launch. she went through the scrub and came back the next day and a saw it. what if the colonel when explaining it should we were turning away. he said we are not abandoning
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any thing. we are probably on a new course of human spaceflight is in our dna is it's important for you to help us explain to people who will look at the headlines because you write that line so make it accurate. we are not abandoning human spaceflight by any stretch of the imagination. we have ten more years of involvement on the international space station. that is exciting. we just hired astronauts in houston who were somewhat offended people think they have nothing to do. we have crews we just came who are going to be spending a year of their life training and moscow just to get ready to spend six months of their lives on orbit. that's exploration and human spaceflight and i can count on that until 2020. i've got seven companies represented here who are telling me that they are excited about finding ways to get humans of this planet and into the lower earth orbit. that is human spaceflight so for any of you who think we are
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abandoning spaceflight and i respectfully disagree. i think we are going to get their perhaps quicker than we would have done before. if you look at flights to mars for example, been changing technology enables us to go to mars in days, not months. by doing things we are about to do, taking the money president obama has given in the budget the next five years to use technology development i'm not trying to fool anybody that this is going to be easy. i still have to go to the other in the capitol hill, to the other end of pennsylvania avenue but i am excited about the opportunity to do that. i now have a budget that allows me to walk to that end of pennsylvania avenue and say this is the program that i want all of us to work on together. it's got to be a partnership. some of you may have heard my comments yesterday on the budget rollout. this is a "we thing."
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this isn't a near-earth thing. it is a "we thing." nasa and industry, and academia, we've got academia represented here i won't call the name of the school because i don't want to advertise it but they are here. these are exciting times. anybody who was ever on a college campus over the last ten years and walked into an engineering school and salles the dearth of research going on on the space science and earth science and other things because there was no research money i think that is going to change. so, help us tell the story because i think it is exciting. >> general, as you well know yesterday was the anniversary of the columbia action and it's my understanding that the consolation program was assembled as a direct response to that accident, the findings
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in the columbia accident investigation for example which mentioned the absence of the used the term national mandate prior to the accident and the fact that nasa was stretched too thin. how do you incorporate the actions of columbia into this new venture particularly the part they identified as being a lack of a national mandate? >> frank, can, you limit the sources of lessons learned. our lessons learned in nasa go back to apollo burr one. we felt really good about ourselves in 1986 like until you i landed in the middle of the desert at the air force base in the middle of the night
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january 18th, went back home to houston and going through my debriefings and my very last day of debrief we took a break to watch the space shuttle challenger and launched in 73 seconds into flight i lost seven friends and we once again were the weekend that this is hard and that you have really got to stay on the top of your game. then again january 1st, 2003. at the end of a mission when everybody is celebrating because nobody thinks you're going to have a problem doing their reentry except us in the game who know that it's not over until that is over and that is why you call what stop because of the aubuchon breed. we are reminded this is tough stuff. there are lessons to be learned from the columbia challenger, apollo one and other incidents we had along the way that didn't get the press goes did.
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the president has set a bold challenge. we are not drifting. i have had friends from houston who write me when you talk about flexible half and i admit it flexible path is hard to grasp but let me help you. they sent me a thing and said this is like alice in wonderland when you are going everywhere you are going nowhere. we are not going everywhere. we have defined destinations we want to go and we will go incrementally and through our technology development that will help determine where you go first we we wanted to get into the opportunities that come as the technology develops so i think, frank, i hope that answers your question how we are taking lessons of the past. >> once again speak to --
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>> tammie from aol news. given the delays on the previous nasa programs why is this going to be different? spirit is going to be different because the president said not a budget that supports where we think we want to go and we are building programs based on the budget we have and not building programs based on a dream. dreams are really important. dreams are critical because without a dream, and proverbs what does it say without a vision people perish. i am a visionary if you want to call me that. i dream of the bible to be a realistic dreamer and a president has laid out a pretty healthy budget that we feel we can plan to the budget and stick to. if you go back to the days of the sts, the space transportation system -- i see some people shaking their heads -- at that time it was told to me the brief was given to president nixon and he said lyle
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lovett, do it and the next morning somebody called and said with the president meant to say once you're going to get this amount of money and then we struggled for the rest of the program. this president has said here is what i want you to do. here is the money that he will have to do it. let me know if this supports that vision and we have said yes. would you have told us you want to do is supported by the budget you have given so that is why i say hold me responsible. i have sufficient funds to do the things i think we need to do for this nation so you need to hold me responsible. i can't say the president hasn't given me sufficient funds. >> to the issue of flying astronauts and commercial vehicles, after all the talk yesterday i sort of sat last night doing mental totally unscientific poll in my head of people i've talked to, and kenneth and people who work for
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these companies and i came up with a number of 60 astor roskam 60% said i wouldn't do it and 40 would. then i thought what is behind this? it's like this emotional latter-day rights stuff, the use logic to say why they wouldn't. how do you get beyond that? what are you going to say to the astronaut corps like this is how we is? it's not just the court it's a larger group of people who support them. >> negative to the work force committed everybody understand the question first of all? key to the nail on the head. this is all the emotional and the reason that i started my comment by thinking of the constellation team is because you've got to understand everybody has had a death in the family. to people working on these programs this is like a death in the family. so everybody needs to understand that and we need to give them time to grieve and then time to
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recover. i have an incredible work force of civil servants and civilians. they have been through this before. you know, this is just part of the life of being in nasa. every time we managed to pull through and recover and go off and do great things and this time will be no different. that doesn't make an employee at the kennedy space center or the johnson space center or marshall flight space center or contact any of these seven people were present, that doesn't give them a great sense of solis because they are facing reality. but what i told them this look we are going to get through this. stick with us if you can't. some of you will decide this is an exciting enough and you want to do other things and i appreciate the service you give in. allow us to help you in your transition and if all possible let us help you find work
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somewhere else that's been to be passionate to you. i'm a big person for passion. i'm here because i'm passionate about space and exploration otherwise i would be sitting in houston texas jury in san diego with my granddaughters. i'm here because i'm passionate about this. i cried about it sometimes, so what. so this is my life. this is their lives. give them time, they will come back and will be as great as the of always been so just bear with them and give them time. >> fox tv russia. as nasa partners with aerospace industry in the u.s. do you have
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any plans to involve russian companies in any way in the future after the shuttle retirement and can you please specify the process of delivering a astronauts to iss in terms ossianpaicipation? again after the shuttle retirement. >> i had just a conversation with a friend of the head of the space agency to make sure he understood that where the president wants us to go he was excited as for all of the partners about the president's support for extending the life of the international space station to 2020. they were all excited about the funding that's going to commercial entry of commercial space into exploration and low earth orbit. the russians have been an incredible partner through the years and will remain so. i think most of you know when daschle retires at the end of this year our primary means of
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getting astronauts to the space station and anywhere else will be the spacecraft. i love it, i've never flown on at the the bad part about is it leaves us without redundant. i think you talk to any astronauts no matter what they think keith mentioned the polled 6040, 4060 whatever, most of us will tell you what we think is critical for the nation is reliable, abundant, access to space. when we retire shuttle and it is the right thing to do for those of you who might want to ask me that question. it is definitely the right thing to do so when we retire the shuttle at the end of this year we will no longer have a reliable redundant wait to get humans into space. the sooner our industrial partners can deliver the sooner
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we will at least have some redundancy in our ability to get their. two is better than one, several is much better than to so we will get their. >> one last question. >> thank you. i am with abc tv stations. our houston station is very interested in a possible space program basically because boeing is headquartered in houston. one of the things mostly concerned about is jobs and as we know one of the president's main goals is job creation, so is there any possibility, any
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plan something money awarded to the company's largest boeing will go toward job creation? >> i think if you look at -- when you look at dollars planned for a program those dollars can translate into jobs, the more money on a program as a general rule the more jobs would be involved, the exciting thing i think i would have to ask our partners to say but the more money they got the more jobs that means, did i get it right? okay. so when people ask me why am i excited about the president's budget? it is a $6 billion over the next five years we otherwise we're not going to get, so that says there should be a net gain in jobs. let me not for anybody. as i mentioned to somebody that asked the question earlier, we are now formulating our plans. we are making some big changes and i don't think anybody can
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expect we will have details specifics laid out overnight. it's going to take a little while. we are going to have to figure out how we draw down the constellation program in cooperation with our partners and economists. as we have got a lot of work to do but i am confident we can get there but when i look at the amount of money president obama has put in the nasa budget specifically for human spaceflight, commercial spaceflight and other things technology development we didn't even have before to me with my simple brain that translates to jobs. i can't tell you whether it is clean to be 1200 for 5,000 were 1200 for 600. i don't have that granularity yet but my little brain tells me with me money we have the potential to increase the number of jobs in our field of
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endeavor. let me thank you all for coming and look, the tough but be fair and honest and human spaceflight is something that is critical to president obama and me and this nation. our leadership is critical to our international partners. i had a representative from the embassy in israel, to me last week when the chinese and us were not talking about other things and say are you still planning to come to china and i said are you sure the invitation still stands? he said of course we are talking about space and science so, you know, while anything could happen, there is something that draws people of different cultures and different characters and everything
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together and space is one of those things and i've found that in traveling around the world. everybody wants to work with us and we intend to keep it that way so it is a good start today. keep your eye on us and see how you doing and hold our feet to the fire. thank you. [applause] >> thank you. as we say, thank you very much for your attendance and as we say the newsmaker is adjourned.
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treasury secretary tim
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geithner told the panel today the nation's economy is stronger than it was a year ago but the government must continue to act to stimulate job growth. the treasury secretary testified for two hours before the senate finance committee on the president's $3.8 trillion budget request for fiscal year 2011. >> another is tax cuts are not free. another is we should be paying for programs that are new we commit to. fourth, we face great fiscal peril as a country and finally, our priority now has to be to make sure this economy is growing and getting people back to work. a year ago when the president took office our nation was in a deep recession, the economy was contracting at an annual rate of about 6%, the financial system was on the verge of collapse, credit was frozen, the housing
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market was in free fall, millions of americans lost their jobs and we were losing about three-quarters of the million jobs a month. we also faced a deficit of $1.3 trillion projected deficits before we took a single act that according to cbo put more than double our nation's debt over the next decade. this recession has caused tremendous damage and millions of americans today are still living with the consequences of that damage and we all know the road to jobs to greater economic security to fiscal stability start with economic growth and today in large part due to the policies congress enacted and we put in place to put up the financial fire our economy is growing again and in the last quarter it grew at an annual rate of about 6% more rapidly than any time the last six
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years. this is progress, it is not enough so and that is why we need to renew focus on job creation on investment and on innovation. when you talk to as i know you do, when you talk to small businesses across the country today they tell a similar story. the talk about uncertainty about the demand for their products. they say their ability to expand and hire depends on the access to credit. i was in minneapolis last week and visited a small family-owned business called a standard heating and air-conditioning and financing from their community bank a bank that is also a community development finance institution they were able to build a new warehouse for their growing business and add it 80 jobs with their bankers and without access to capital from t.a.r.p. such loan wouldn't be possible. i met with a bank a real honor with plans to create a second plan that would create 150 jobs if they can raise credit
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necessary to that expansion. small banks as you know are very important source of credit for small businesses and that is why when the president took office the only incremental money we put into banks would be not to the largest banks but small community banks and regional banks and that is why today in new hampshire the president will announce will transfer $30 billion of t.a.r.p. funds that we took back from the investments in the major institutions to help create a small business lending fund and this will offer capital to community banks who historically have been at the center of lending to small businesses and who need now to be able to grow and expand. that is also why he will propose to the legislation to support $17.5 billion the sba loan guarantees. we want to increase the loan size, maximum size and the heavily used program and extend the recovery act provisions that
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we've fees and raise guarantees further improving access to small businesses to credit. in addition to these steps on credit we are preparing to extend recovery act relief for small businesses and proposing a new $33 billion small-business jobs and wage tax credit and this credit will provide a 5,000-dollar credit to every new employee hired in 2010 and will reimburse employers for their payroll taxes on salary increases above inflation. we are also proposing to extend additional tax cuts for investment through the expensing most appreciation measures are tax credits the german referred to and as we know we proposed a permanent exemption from the capitol gains tax and small-business this. we will continue to work very hard to help stabilize the housing market and make sure that we help more homeowners keep and stay in their homes and we understand and we know that
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the government has to be smarter doing things governments only governments can do. the president's budget we laid out a comprehensive agenda to invest innovation and strengthen the economic foundation and this budget is designed to help is creating the conditions of a private sector to grow and expand and allow businesses small and large to create jobs and make investments. to do this we need financial reform. because families and businesses both need a financial system that supports not just innovation and choice but provides better protection for consumers but is taking the savings and investments of americans and channeling them to innovation and investment, not financing, real-estate and financial booms. we need to increase innovation. last year with investments congress approved we supported the largest investments in basic research funding in the history of the country and want to build on that with new incentives for r&d and investments in new queening technologies that will
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help improve economic productivity. sprick secretary you can disregard the blinking light and take whatever time you want to take. however, i will apply the time limit to the rest of us. >> we need to increase exports. the more products this business is sold to other countries the marchante will support in america. we need to invest in education. businesses need an education system that does a better job of teaching and creating a skilled and productive work force and that is why this budget supports reforms to raise the quality of achievement produced by the schools that also makes a college education more affordable. and of course we need health care reform so we can help provide economic security for the tens of millions of middle class families and businesses and help reduce their health care costs. these are reforms the government has to make. when the governor fails of the basic challenges americans suffer and businesses suffered.
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the market cannot solve these challenges on its own. the government needs to address the challenges in order to provide the foundations for a stronger more dynamic private sector and that's why the budget proposes a series of investments in these areas. part of fleeing the foundation for the future economic growth and prosperity is returning to living within our means. when we have strong growth in place we need to begin the process of bringing down these deficits. these deficits are too high and the american people and investors around the world need to have confidence in our will and ability as a country to bring them down over time. now the president's budget proposes important steps towards the objective. first he proposes starting in 2011 that we cap on 63 discretionary government funding for three years. second, we are proposing important changes to make the tax system more fair and help begin the process of bringing
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down deficits. we propose to allow the tax cuts for the most fortunate few americans the highest earning two or 3% of americans to expire. we propose closing what is called the carried interest new poll by taxing the income of hedge funds and private equity managers in the same way we tax the income of teachers and firefighters. we want to eliminate unnecessary tax subsidies. but as we take the modest steps, we are also proposing to extend just for one year to extend the accord a tax credit goes to 95% of working americans and we propose as you know a series of additional tax incentives to help retirement security to make college education more affordable and increased the care tax credit. now we are working to close down t.a.r.p. as your cost to taxpayers. last year at this time the independent budget scorekeepers expected that the cost of fixing the financial crisis could exceed $500 billion. today those estimates are now on the range of $100 billion we've
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proposed a fee on the largest financial institution in the country, those institutions that benefit most from efforts to restore to prepare the financial system that will help insure american taxpayers are not exposed to a penny of losses under t.a.r.p.. third we must restore the basic disciplines of budgeting that all american families live with by reinstating pay-as-you-go. any new initiative on the tax or expenditure side should be paid for without adding to the deficit. in the 1990's that basics of disciplines helped plea and a important role moving from a deficit that was 4.5% of gdp in 1991 to a significant surplus in 2000. the budget of lines that have to bring the deficits down as a share of gdp to look just below four-point -- 4% of gdp while government support for the economy is critical now we can't
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let the future deficits and debt continue to grow faster than the economy without hurting future investments and growth and this will be a difficult task that will require tough choice is particularly unpopular choices and required eckert and republicans to come together on things that will make a difference bringing down long-term deficits and that is why the president supported the creation of a bipartisan fiscal commission which will be charged with identifying responsible policies they can bring these deficits down and win support on both sides of the aisle. the commission's first task will be recommending changes the will bring the operating budget meeting the budget expenditures for interest to balance over the next five years. it's also going to be asked to find and identify solutions to the longer term fiscal problems. i want to conclude by saying that america is in a much stronger position today than it was a year ago but our challenges are not just to
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repair the wreckage caused by the recession. we are in a very tough competitive race with companies and governments around the world and that will determine who leads the future which economy will be stronger, more creative, better attracting talent and investment and better at sharing the gains of growth more broadly across the citizens. in many ways we dominated the competition for decades and are going to do so in the future but our lead in some ways is eroding and it is eroding because for too long our government hasn't been able to make the kind of policy changes and reforms that kind of investments that are essential to broadbased economic growth and that's why the investment and reforms we propose in the budget or so important. i look forward to working with this committee and answering your questions. >> thank you. first i appreciate the emphasis on jobs especially small business you mentioned some areas the 40 billion t.a.r.p.,
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7 billion small-business loan guarantee, 33 billion small business employment tax credit etc. the president's announcement today on the $30 billion of t.a.r.p. which be a little bit more explicit how that works? you might pay some attention to the concerns some of the money gets loaned or is made available to the banks and sometimes they don't lend as much as we want them to. >> exactly right. our judgment is the most important thing we can do for small businesses now or to give them tax incentives to invest as we do four things to highlight it and senator grassley highlighted in opening statements to add this tax credit to encourage hiring which building on suggestions made by members of congress and putting as you said senator schumer and senator hatch to expand with the sba can do, they can be very powerful by expanding the size
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of loan guarantees reducing fees we think that helps, but a critical role has to be to try to make sure banks and cdfi have access to the capitol that help them land. a dollar of capital for cdfi is probably one of the most effective use of the taxpayer resources because for every dollar you gave for capital it can support up to eight to $12 in additional lending. banks that need additional capital can use capital under this program to support additional lending and they are going to be less likely to have to reduce lending if they were unwise or unfortunate and made bad decisions during the boom. but to do that, we have to take this capital and use it to actually expand lending. as we suggested a very -- variety of ways to do that. we think fit we've got good ideas to do that but want to work with congress and members of this committee and members of the banking committee to find the best possible to do that.
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but small businesses rely on banks for all the credit they generate and to help them you need to make sure that the banks they rely on have the financial ability -- mekouar you going to guarantee the banks actually land because that has been the concern in the past sometimes thinks make other investments to fatten the bottom line. they haven't used all the money is the capitol available to them to actually land. >> i think the available evidence shows banks that took capital expanded lending and use of more lending by banks that took the couple than those that didn't come as i think it is a pretty good story on this side door right our objective has to be to make sure we design these things that substantially improve the odds to you see lending growth not shrink. a lot of banks took on too much risk in the crisis.
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there was true of community banks and a lot of them have been forced to retrench and pull back and that hurt a lot of the customers and businesses so i think it is a very good legitimate objective to work together to find ways to mitigate that pressure to work against that. >> how do you balance spending for job creation and addressing the recession on the one hand and cutting back to address the fiscal problems on the other? what are some of the parameters, what are some of the benchmarks making that here because it would reduce the deficit increases in the short term and the budget proposal decreases in the longer term. how do you decide where to draw the line? >> you are right. many people think these objectives are in conflict with a are not for the following reason. if we do not succeed in repairing the damage caused by the crisis, we don't succeed in
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getting growth back on track having a growing economy again with businesses confident we will not be helping our long-term deficits. they will be worse. the fiscally responsible thing to do right now, given the scale of the damage caused by the recession and the importance of the recovery is to make sure we are doing sensible things become effective targeted things to reinforce the recovery come improve business confidence, get americans back to work. now we can't do that effectively unless people also believe that once growth is established, we are going to bring down those long term deficit so unless we convince people we can restore gravity to a long-term fiscal position we are going to have limited ability to meet these immediate challenges that we all share. >> my question is how did you decide to try to the cultural labour you did, that is not more in the short-run stimulus why did you draw the line where you did? >> there are two critical aspects of the issue right now. one is how much more now can we
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afford? because there are limits to what the government can do now. our deficits as a free betty says are alarmingly high, they have to come down in time and we do not have unlimited resources available that we can borrow from the rest of the world into even a well-designed program so there's limits on that and with the president proposed in the budget is to set aside $100 billion on top of some of the extension measures and recovery act already approved like extension of unemployment insurance and i believe the country can afford that if we design the use of the package sensibly that will be a good thing not just for growth but long term fiscal position. the second is timing. how quickly do we move to restrain? and the president's budget we propose in the fiscal year and 11 begins in the fourth quarter of the calendar year which we believe will be more than a year after we took a positive growth restored to begin to bring the deficits down. we've proposed to reduce them by two percentage points of gdp the next fiscal year.
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some people may think that is too much and that the economy may be a little fragile short of growth and its possible there will be read. many people say we should cut deeply in that but we suggest we begin the process of restraint when we are confident it will be well established. >> my time has expired but i just pointed out the obvious mainly that we can't afford the luxury of making mistakes. we have to get this right and that means digging down deeper, drilling down a little bit more and asking tough questions and getting the data the balance between the two objectives here. we can't afford the luxury of being cavalier and be easy about this. >> i agree and we have to make sure every additional dollar that we support is going to have a higher return.
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>> mr. secretary, on february 11th plaster, the congressional budget office wrote a disturbing letter outlining the affects of making the provisions contained in the stimulus bill permanent and i would ask the chairman to insert that letter in the record at this point. the stimulus bill was sold as a temporary measure to get the nation through tough times, however to the surprise of few congress is already being asked to extend the temporary tax and spending provisions in the stimulus bill. we have a chart outlining the content of that letter from the cbo, the stimulus bill as originally passed by the house was estimated to cost 820 billion. as large as that number is it is only about a quarter of the whole cost of making the tax spending provisions of that bill
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permanent. cbo estimated the whole cost of permanence including debt service would total three or three tenths trillion. the actual price tag of the stimulus bill has signed into law was a little different but the point of the charter is to show the true cost of making the temporary permanent. i think even in washington that three and three tenths trillion is a lot of money. it's kind of liked we thought we may be bought a pet and in the up with a godzilla. what we want from you is assurance this won't be let loose on the american people we in my party are often criticized for not offering tax increases to facilitate debt reduction. the same criticism could be made of people on the other side of the aisle for enacting so-called temporary spending that is likely to have a larger than
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anticipated fiscal impact once the temporary provisions or extended. so, trying to get back to what we were originally thought we were doing, would you be able to tell us you're going to be will to maintain the fiscal liability of extending the stimulus bill? can you promise to insure the cost of the stimulus bill was limited to the official estimate? if you agree we should let fiscal impact to the temporary nature would you be willing to carry this out by either working to support the original expiration dates contained in the stimulus bill or by offsetting any extensions with spending reductions in other programs? >> i think it is very important that we all commit to the objective of making sure that the temporary things we did to
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pull the economy out of crisis are temporary and not build them long-term expectations of higher expenditures in the future, completely agree with fat and part of getting the deficits down in the medium term is to make sure we let those emergency actions contemporary actions expired and don't get built into expectations of future spending. we do believe there's a strong economic case now for extending certain provisions in the act and have a powerful act on investment and job creation and as the chairman said we need to be careful those things meet the test. we are not going to propose to extend everything. we propose a limited extension of the provisions. we think there's a good economic case because we want to reinforce recovery and growth but i agree we cannot let that add to expectations about long-term commitment on the expenditure side or it will be harder to bring them down in the long term to read it should be
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what is going to add jobs, what is going to add spark to investment, what is going to provide good leverage for the taxpayer money and we need to make sure we're doing that in a way that this fiscally responsible over the medium term. >> mr. chairman, i think i would like to reserve 44 seconds for the next round so mccaskill on the question. >> you may even have longer than 44 seconds. senator rockefeller. >> senator grassley, you were actually just 31 seconds. [laughter] >> he's a good man, we will give him more. >> that's true. that's true. a secretary geithner, i want to go right to coal in the energy part of the budget. let me just say this colin grow i come from state of west
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virginia that has a hostile attitude toward any changes in current practices with coal. which is against cap-and-trade and any change at all. not in all cases. i am trying to change that and this budget is going to make it hard for me. let me explain. ç abouti] 6.7% of its electricity. q coal gives itçóç about 85%. but you gotç all kinds of tax credit elimination's in about coal, which come out of the meeting in pittsburgh of the g- 20, and i understand that.
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but also don't really believe that china and india are going to be part of that. çóso on top of thatç, a relatiy small thing but a nettlesome thing, you shift costsw3 of osm onto the coal industry. you shift that on to the industry. you call it a fee, you make the you should the fanta the industry so that, and you call it a fee. states have to put on a fee, and so coal is caught in a very difficult place because it is not certain we will get a bill this year. it would be good if we did. i talked to the people i represent about the fact that cap-and-trade was in fact the exact mechanism we used some 30 years ago to do acid rain. there is no difference and at
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that time it came in at only 20% of the cost of what people had predicted. i am trying to be helpful in this. i talked to paul myers, talked about cap-and-trade, i talked to industry. some are reluctant, some large. now in your budget, and the way i see it is that the way out is technology, and cece as being the major part of that. you have a total of $545 million for the country in the budget for research and development. just to put that into perspective, that has already come of that amount has already been about spent on just doing 17% of the emissions of one power plant, the largest power plant in north america,
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according to american electric power, to 17% of their emissions. they have reduced that by and 97%. others can take 95% of the carbon and, 90%, 95%. now my question to you is, what is there in here which is hopeful for coal, because what you are doing is you are shutting, you are going to cut down the production of the call this year when we may or may not have the climate change bill. john kerry's bill and other bills may very well talk about substantial amounts of money for clean coal, making coal clean which i am strongly for. but in the meantime, you are sort of saying to west virginia, forget it. $545 million, what we think of ccs, and in the meantime we are going to take away your tax
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credits so production of coal is going down and that is what you have gotten from our budget which sort of makes me think think kevin's it is the president's budget and it is the staying power may be weaker to. we write the legislation. and i want to do it in a way which makes coal clean, which puts a discipline on the coal industry and a coalminer and on myself to do the right thing for the country. and not continuing giving 54 cents a gallon to methanol, which i understand is a political move and it always has been and i won't get into that. but, i want you to know that there really isn't anything in this budget which i can take home or talk about in favorable terms with respect to call when i want to. the president talked in the state of the union about being for research and development,
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ccsf etc. but the budget does not reflect it. i have run out of time for questions so i guess i would just make that this kind of then imminency auto. >> a very quick response. we are very supportive, like you are in trying to make sure we are providing significant larger incentives and subsidies to encourage clean energy technologies including clean coal. and there are a range of provisions in the budget, which i would be happy to go through with you which to substantially increase with the government is doing to help facilitate the transition. again we want to make sure we are doing things that will work but we want to support the same objective. we believe as you do that the answers in technology and we would be happy to work with you to make sure we have the best ideas for adding that into the budget. >> okay, but they are not in there yet, you to agree. >> i think if you look at the tax credits for renewable
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energies and you look to the broad range of support for r&d, there is more support in there for that objective than the specific provision for ccs that you referred to by began were happy to work with you. i think we have the same basic objective and we understand the tension between the reality today that coal is a major role and will continue to play a major role in energy future and we want to use coal more efficiently and make sure that we adopt the clean technology-- >> thank you. senator lincoln. their she is, over there. >> thank you mr. chairman. appreciate you and the ranking member for holding the hearing and certainly to secretary geithner for being here. secretary, mr. secretary we all know it's budget does nothing more than a blueprint that outlines a list of priorities and it is not binding legislation but it does indicate your values. and it indicates how you plan to lead this nation in the year ahead.
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and, just in talking about all of the ideas that people have for years beyond 2010, our grand and glorious but americans are hurting right now and we need to have a real plan for 2010. or 2010 and 2011, so i want to begin my comments and then i will move to any questions the my calf, just to say in the budget that the administration has proposed, i think there still is a great deal of nervousness among americans and i hope he will work with us to try and alleviate some of that brickell in the wake of the difficult economic times for so many americans icy the budget before us today that would put in place a new cap-and-trade system justice senator rockefeller was mentioning. and it is long-term goals perhaps and change the longstanding tax policies that encourage domestic oil and gas production. i think this would undoubtedly result in an immediate increase in the energy prices for
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consumers and for businesses at a time when they can afford its although we all want to have long-term goals we have got to understand what the immediate present. new taxes on businesses that are trying to compete around the world without any substantive policies to record them for keeping jobs here tom, which is critical. not only that we do the research and development but that we encourage those industries to ensure that that research and development stays here in this country, and american jobs. i see additional regulatory burdens being placed on small businesses and self-employed. licea regulatory reform proposal that seeks to create, recreate the wheel. we don't need to recreate the wheel. putting the best majority of main street banks who have played by the rules all along into a whole new regulatory structure, when the focus should be on improving oversight for the bad actors. many of those obviously in new
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york are on either coast but the majority of them not being in middle america where jobs need to be created. i see a budget that puts a bulls-eye on many policies that rural america of relies on. i grew up in the farming community and a farm family, and the government has provided for many of these policies that rural america relies on and it has been in government policies provided for in the farm bill just two years ago but to cut them off or to leave them hanging would be the uncertainty of whether or not that contract be made with the rural communities and agricultural providers across this country, to cut that contract short at a time, in an economic time when they don't know what to expect. i go through all of this to say that i guess i don't understand and i think most arkansans don't understand the vision of the administration when it comes to
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putting into place economic policy that works for asian in today's economy and the economic climate today. to create the jobs that are cantens need now in our economy. it is critical that we focus on the here and that now. mr. secretary, i don't know how many people you have talked to. folks out there in the real world. i know you mentioned your visit to ohio. i don't know how many farm countries to visited, so i do want to help pass along that message that the budget and the administrations economic policies of late provide more questions oftentimes than the two answers. americans and individuals and businesses, they are desperately trying to regain their footing. they are trying dfid spratley to paul baron cells back from the brink of the economic crisis and now is the time to provide stability in sydney. you mentioned certain the almost
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efforts for five words out of your mouth. i hope you mean that. i cannot begin to impress upon you how critical that is in these economic times. confidence and economic policies that they understand and have bet their businesses on in many instances. and my concern is that i think our budget can do more. i think he can do more than that. building on that point, one of the first things we as a government can do to provide economic stability is to focus on legislative issues that should have been addressed last year annette fled said to myself and to my colleagues here that we have got to do as much, but many of those need to be put aside for the effects of a long debate we had on health care. i hope you'll take an opportunity to look at many of those things. 40 empowerments cells, 40 renewal communities across the nation. somewhere between 500,700,000 jobs either directly or
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indirectly that benefit from those incentives. so many other incentives out there. you look at the venture-capital and the biodiesel tax credits that expired at the end of 2009. there's no certainty for venture-capital now. they don't invest in renewable energy because they don't know what to expect. that 10,000 to 15,000 jobs in the timber industry directly impacted by the tree act of reasons which were not, that did expire last may that were not renewed. we need you to help us focus on the issues. there is somewhere between 2.56.7 million-- >> i want to let you respond very briefly. actually the senators time-- >> i'm just going to hit briefly on small business and then i will end and you can answer. >> secretary come a briefly. tea which are respond? >> i am testifying today on the president's fy2011 budget and the 2011 seems like a long way
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away to many people. our focus right now and we want to work with congress now on a set of measures to help reinforce this recovery and get more people back to work and that is why the president said in the state of the union that our immediate priority is to focus on the things that matter right now. now, but there are limits to what we can do and we want to make sure we go directly to small businesses in job creation, to incentives for adoption of queen technology in support from the structure and help for a stable government. those matter what make a lot of difference in the can't wait to do those things but we also need to make sure we are looking ahead little bit and make choices about the longer term and i completely agree with what you said about certain date. the recoveries depend on confidence. they depend on the confidence of businesses. they depend on the confidence of american families that we are going to make things better and repair the damage done.
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that is critical and everything we do should be guided by that basic resignation and we need to get people more clarity than we have been able to do as a country over the last many years about what they are going to be the rules of the game. what tax policies, what regulatory policies are going to be out there? i completely agree and that is why we ed burring tour of the bunch of things we are still working on here like financial reform, health care reform so people can plan for a more certain future. >> senator stone. >> thank you mr. chairman. mrs. secretary, you mentioned certainty and confidence without questions. this a the two key elements that are the essential ingredients in making an economic recovery is strong one and sustainable one. i had some small business forums a couple of weeks ago in the state of maine and what i heard from small businesses on the ground because i think there is
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a disconnect between washington, the rest of the country and main street between reality and fiscal fantasyland here in washington about the practicalities of the policies that are coming out of washington whether they are speculative or they are real. it is immaterial. the perception is we are going to have more policies coming out of washington that will increase the cost of doing business it is simply not going to do business. i heard that time and time again, that uncertainty is possible for them to predict or to calculate the cost. if i didn't hear it once i heard it a number of times, people say how do i calculate the cost of doing business 19 hearing in washington with an increase in tax rates and frankly when we talk about tunic and $50,000 we are talking about small businesses because 93% of all small businesses are low through income. they are small businesses. and a pay 82% of those taxes. so that is going to have a
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profound impact and for the more as we continue to discuss tax increasing potential they are going to freeze other going to stand still. that is the point. but that is what is going to hamper our ability. then you talk about all of the tax increases and the proposed health care bill, the 62% increase in medicare payroll tax. they are looking at that and that is proportionally affects small businesses. i think there's not only a disconnect but this huge lead time to respond to the needs of small business in a practical fashion. there is no they will way they will move forward to job creation. who would take the risk depending on what is coming out of washington did today, would you put your money on the line? that is the issue and i heard that over and over again and rightfully so until we get certainty on taxes, on regulation, on the issue of health care and health that this boomeranging off the walls between the house and the
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senate, we are not going to experience job creation, so i bit like to hear from you what certainty and when we are talking about these tax increases, in nine to 15% increase in taxes. for the mark, on pain things, you said we should pay for things. but using tire is not a means of paying for it. that is the bomb that was meant to be paid back, not to be spent ultimately. i think we ought to use unused stimulus funds for that purpose. and so i hope you would consider that. i am asking for lists from the omb director for all unused, and spent stimulus funds to use it as aunoffset and pyler think we should have been shot impact statement. every piece of legislation that comes with the united states congress so we know at their creating jobs, losing jobs are produced serving jobs. it is that critical to the future of this country and to the interests and well-being of small businesses. the one entity we are creating
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on-- relying on to create jobs. >> i think would businesses need more than anything else is more confidence. there's going to be growing demand for their products and they also want less uncertainty about what is like to happen in washington about the basic rules of the grain kyl two things he said in particular. and this is important. we have proposed, you are right, to let the tax cuts that were given to the americans with incomes above 200 vicki thousand dollars to expire at the end of this year. congress design them to let them expire. we are proposing to let them expire but independent analysts who have looked at this, not just the treasury department analyst, they say those lonely effect two to 3% of small businesses. now you could say to our 3% is a lot of small businesses but it is only two to 3% and again the first independent assessment of that stuff justify that conclusion. now i completely agree with you
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that to bring health care to resolution would be helpful in reducing uncertainty that has happened but it is also important to recognize businesses today under our current system, small business in particular, face enormous hidden costs and our health care system. those that have health care paid much more than large businesses do. they all pay for the hidden costs of paying for the uninsured. this country's health care system today is not a good system for businesses or small businesses and they are facing much more rapid growth in health care costs than large businesses but i agree with you that bringing resolution to health care reform would be helpful to certainty and confidence and good for small businesses too. >> thank you mr. chairman. i want to pick up on your questions as well. secretary geithner, the banks are getting bigger and lines of credit to main street employers are getting smaller. and it looks like a vicious
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cycle, the taxpayers' bailout the too big to fail institutions only to be more vulnerable to them. now, a few minutes ago you told the chairman that the banks that got bailout moneim for increasing lending. your own treasury data however taints a different picture. your treasury data demonstrates that the 22 banks that got the most help from treasury bailout programs have actually been decreasing small-business lending. of the inspector general's report on january 30, the t.a.r.p. report, says exactly the same thing. so, my first question to you picks up on the chairman's point about the urgency at of small business funding. tell me if you would out the new program that is being discussed is going to be an improvement on the two programs that your own data and the inspectors general
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have said are not working? >> i think if you look carefully at the evidence the people who took the t.a.r.p. money in those who didn't i still think the evidence is pretty good on a relative basis. you saw less sharp reduction lending. >> knots for small business. >> again the point is our basic challenges however be going to make this better and power be going to fix it? to be honest about it, the big challenge we have had is that small banks have not been willing to come and take advantage of these programs because they have been deeply concerned about both the stigma that comes with taking that assistance in the potential concerns about conditions actual and prospective. we have hundreds of small banks that with your their applications from the treasury even as we try to make these programs more attractive than they did that because they fear of the stigma and fear of the conditions so what we propose is to in some sense separate this
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from the trauma endamage of association with the t.a.r.p. and do it with a better, more sensible set of conditions but that requires a legislation requires working with you and requires getting input frankly from banks on how to do it. we propose one way to do it but there are people with lots of ideas on how to do it then we will work with you and other members on how best to do it. if you don't do things that help community banks, it is very hard to do enough to help small businesses that depend on community banks. >> i would like more detailed answer in writing if i could get that because i continue to be uncertain with respect to how this new program is going to improve on to others that your department and the inspector general had criticized. let me go to an area where we are seeing progress and that is the funding of the infrastructure. the build america bonds program, to a great extent because the
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chairman and senator grassley we thought my proposed the issuance of perhaps $5 billion worth of bonds are roads and transportation systems. as you know, it exceeded $60 billion, and clearly this is null the boldest effort in municipal finance as it relates to generating the improvements we need an infrastructure. dow, you will proposed making this permanent, but you also, it appears to me, seem to be suggesting that there be additional areas that would be eligible for build america bonds, refinance projects covering operating expenses. what concerns me is, if the country goes that route, that won't do as much to create new jobs, new family wage jobs particularly in transportation where there is the great economic multiplier as their
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original bipartisan proposal that senate triffin, a big group of us have been working on. so tell us that you would how your revisions in the build america bonds program will still help us to achieve what has long been a bipartisan objective up here, which is to generate more new jobs in the infrastructure area. >> you are ride. remarkably effective program to the credit of you and then if your colleagues up here. senator baucus has been supportive of this stuff. it is one of the most effective per dollar of tax payers' money that we have seen out there. we think there's also a good case to look at the scope of applicability but we would be happy to work with you and try to make sure that if we expand it, we are not going to reduce its basic effectiveness but we propose something that is no cost in there for me to that basic test of fiscal responsibility. very important to note that because of this program and a
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range of other programs the cost of borrowing has come down very dramatically and that has been very helpful, because state and local governments still face really difficult challenges that they haven't seen in a very long, many many decades and we need to keep working at trying to help them get through this and we think this program is one way to do that. >> thank you very much. >> senator bunning. >> thank you mr. chairman. i was glad that a lot of my colleagues brought up clarity, confidence and certainty, because that is one of the unbelievable things that the american people are having difficulty with. and therefore i am going to question some other things that kind of lead up to that clarity, confidence and certainty. the reasons you and others have stated for bailing out aig and changing the terms of the
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bailout seem to have changed over time. so i want to give you the opportunity to set the record straight on two questions. first, why did you believe the aig could not be allowed to fail? was that the impact on insurance policyholders, the derivatives counterparties, the money market or something else? >> senator thank you for asking that question. as i have said from the beginning our judgment was that the failure of the aig would have been catastrophic to the stability of the financial system. it would it have the effect of undermining confidence in the insurance system and created a prospect of much greater failure across the financial system. you would have seen much more damage to the basic value of american savings and i think anyone doubts that he does have to look back at what happened after lehman failed brickyard judgement was and this was not
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just my judgment senator, it was the judgment of the range of people who were responsible for the position that the time including president bush and secretary paulson and chairman bernanke, our judgment was those pressures esau actor lehman postal woodfin judgmatically amplified it's aig failed than they would spread to parts of the system that would otherwise been unaffected including basic confidence in the insurance system. >> let me get to the point. why is it the derivatives business, lending at the insurance companies, the commercial paper, the aircraft leasing business or something else? >> it is in some ways, again it is hard to separate. what is systemic risk, a difficult thing to judge. >> we are all finding that out of here. >> but that is the reality of it. but again i think the simplest way to they this is look at what happened after lehman brothers and the broader collapse of many
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of our large institutions. the value of the american savings fell by 40%. you saw hundreds of thousands of businesses forced to close, millions of people lost work. basic confidence in the stability of our system was broken. the rivets for coming of the submarine and in that environment to have the largest insurance company in the world that had written savings protection contracts to thousands, hundreds of thousands of american households into a bunch of local governments, to have that institution fail in that environment our judgment would have been catastrophic so what we did was the best we could with limited tools to try to limit risk to the taxpayer. >> okay. when did you first become aware that aig was in trouble, you, personally. >> aig informed the treasury and the fed on friday, i can't remember if it was september september 12th or if it was that friday i think it was set friday
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that they were-- >> this was in september? >> that's right, september 2008. they did not believe that they were going to make it without support from the government. >> socia aig condition did not come up your july 29th meeting with the company's ceo when he was asking about access to that funding? >> no. as i have testified before, agee's officials including ceo approached us informally and my colleagues at other times over the preceding probably six months. machen said, what if we face the possibility of a significant liquidity pressure? under what circumstances is it possible for the fed to come to our assistance but it was really only on that friday senator that they came to us and said and it is important to remember this, the federal reserve had no authority and responsibility for the risk as it was taken. they were subject to supervision by state insurance companies, by
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federal regulators. >> but the fed did have recourse. >> the fed had absolutely no authority, absolutely no responsibility for supervising in overseeing the activities of aig. >> not for supervising. >> at that point-- >> that is how the t.a.r.p. money was used. >> no, but you know this history well senator. when they got to the edge where they could no longer operate without government assistance they came to the fed and said, will you help us avoid default? and we said, like we always did, we said what is going to be the best way to continue at the least cost to the taxpayer and we make those judgments with exceptional care, with extreme reluctance. no one would ever want to be in a position, ever of giving it dollar taxpayer money to a company like that that mismanaged its way despite the
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supervision of the company. >> and at the time you knew it was failing. >> of course. i mean no one would want to be in the position that there was any other way to put taxpayer money on the line to prevent defaults by a company like that. if there was any way to avoid that, we would have jumped on that and embraced it. >> but you did it with their stearns anna lehman. >> the bear stearns case, it is could you raise that case. and the bear stearns case there was a willing buyer able to come in and buy and guarantee-- >> they were willing or not. >> you can ask them. >> we have but thank you very much. i will continue later on. >> senator stabenow. >> thank you mr. chairman and welcome mr. chairman. i'm going to take the previous questions and actually to the back to what is happening to american families, american businesses.
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to avoid a disaster actions were taken last year, aig because the country was at the edge of the cliff and there was a concern about disaster. we have 15.3 million people who don't have jobs, the don't have bread winners in the family nationally. that is a disaster. most of that overwhelmingly did not happen on president obama's watch or your watch but i would first day that when we have 6.4 people looking for jobs or looking for work for every job available, that is a disaster and i believe the recovery act was a response to the disaster of families and businesses. and it was inappropriate response and we need to keep our focus there, so i wonder, i appreciate your focus on small business which is critical for job creation. as i am sure you know, even
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though things have been done through the sba last year, we don't have enough capital available. we have serious issues. we have small businesses who are now in a situation where they don't have collateral because they don't have their equipment. their business isn't worth what it was, their home is worth what it was so now they have the one-two punch of can't get a loan, don't have collateral as well which is something we need to address as we are looking at these issues and we have suggestions on how to do that. but i appreciate your focus on small business, on exports, education, health care costs in deficits. i would like for you to speak just a moment though on why it is so critical now in terms of deficit reduction in the economy, to focus on jobs. jobs in deficit reduction are not separate in my mind. and i wonder if he might just be a little bit more about how
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creating jobs will actually grow the economy and reduce the deficit? the you are exactly right. the economy is in crisis dylan for the average american for many businesses this is still the worst economic environment in the most challenging economic environment they have ever experienced and that is true even though we have been successful in putting out this financial fire at the center of the system and even though we have been successful and starting to repair the damage in putting a floor under an economy that was falling off the cliff. you are absolutely right and it is because of that that our first priority has got to be ways to use additional assistance from the government to provide incentives for investment and for job creation, and we want to make sure as we do that again because we don't have unlimited resources, we are focused on things that have the biggest bang for the buck. and, focusing on small
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businesses and tax incentives and credit is one way to do that. that is not the only answer though and we think it is important that the complemented by support for investment incentives, clean energy technologies, for infrastructure and there's something stating governments need for good they need desperately now to make sure they can weather this major storm ahead. >> i wonder if he might also speaking little bit to one critical investment that i am very pleased is in the president's budget and it relates to manufacturing, clean energy manufacturing. in the eight years prior to president obama taking office be lost almost 6 million middle-class manufacturing jobs in this country and i think there was a belief that that time if you could buy something, it didn't matter where it was made in the want very much to see it is the made in america again and the products around the world and in this country. the 5 billion-dollar expansion
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of the manufacturing tax credit, i am very pleased. i have worked with senator bingaman and senator lugar, senator hatch. we have legislation to expand and after we work done very hard with you in the recovery act but i wonder if he might speak to why this important to focus on the clean energy manufacturing incentives and the success that we have had up to this point? >> as you heard the president say and i know you believe this, we want the united states to be the leader in those technologies. we think they are critical. we think in some ways they are the best hope for trying to make sure that we take it advantage of the great skills and expertise and productivity of the american worker and have them working on things that will be obviously central to our economic future. this tax program is i think by all measures a very effective program. it is in remarkably oversubscribed because you know
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we are proposing to expand it. we are not going to wait for congress to act because we can use the remaining resources we have now to continue support but we think it makes a lot of sense in we would be happy to work with you and your colleagues to make sure it is designed in a way that meets the basic test. we want to do things that have the maximum bang for the additional systems provide, for the tax system more direct investments in this program meets that test. >> thank you. thank you mr. chairman. >> you bet. chairman menendez. >> tester chairman thank you for your service. a lot of middle-class families are affected by it. i appreciate your comments on loan guarantees ayn that have a can turn however if there are no loans, there are no loans and guarantees so we look forward to may be working with you on that to see how one fact that actually become something much more than a hollow promise.
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i want to go on to three things very quickly in the hope he will work with me so i get through them quickly. one is the administration has proposed a modest fee to help pay back the t.a.r.p. gunzburg of the banks are objecting to this modest fee to pay back the taxpayers because of the suppose it affect on lending they claim in the cost to consumers and at the same time many of these entities are paying some of the largest bonuses to their own executive so one is, how do they reconcile that position and secondly, should be looking after things tabak taxpayers for t.a.r.p. in a few years? shouldn't they have those banks continue to pay into an insurance fund so that in the future banks rather than taxpayers effectively will be paying if one of them fails? >> senator i don't think there's any significant risk that this be as we designed it would have a negative impact on lending. partly for the reasons you said.
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banks don't have to pass this on. models reductions in compensation budget would absorb the cost. we think it is absolutely essential to make sure that in financial reform legislation we are meeting a basic common-sense test which is the government has to take the risk of loss in the future, put out some financial future bair. we do not want the taxpayers to bear the burden of that cost. that is why we propose to make sure they don't very penny of costs under t.a.r.p. for what we had to do in aig or anywhere else and we want to make sure in the future taxpayers and not on the puck to save large financial institutions from the consequences of their mistakes. >> the question is how we do that, whether we do a perspectively or practicably. it seems to me when we don't do it prospectively we seem to recoup its own something we look forward to working with do you want. secondly i find it ironic that some of my colleagues on the other side of the aisle that past $2.5 trillion worth of
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unpaid for tax cuts failed to pay for two wars, past expanded drug benefit with an overwhelming republican majority without financing one dime's worth, have now we discover the issue of the deficit and at the same time, i hear the same voices clamoring on that saying let's fully repealed the estate tax. what sort of consequence would be toward deficits if we fully repealed the state's tax? is in their way to get 98, 99% of all americans exempt from the state tax, but not bost the deficit in the process and allow us the room for the middle class tax cuts the president's budget calls for? >> senator the president has proposed and we hope to work with you to extend the bates and exemptions that were in place in 2009 and to extend it to make them permanent and we would hope that congress will act to make
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this change is retroactive january 1st of this year. we think that is fair. it captures only a very very tiny fraction of all the states, between one and 2%. we think is fair to do it that way. >> is 90% of americans? >> probably 99. >> would never pay a state tax. only the wealthiest 1%. >> again what we are proposing to do is to take that place and no night and make that permits. that is the broader exception that would be in place it can-- congress did not act because it would go up higher in 2011. >> beckett cicio opportunities crete absolutely no liability for 99% of americans and give us the opportunity to pursue the middle class tax cuts instead of busting the budget. >> that is correct. >> lastly you and i discussed my concern regarding the current law tax loophole using re-entrants between affiliate's that allows foreign based insurance companies to shift
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their revenues offshore and avoid paying taxes. this is the avery that gives insurers a significant advantage over u.s. competitors with our domestic companies and heart attacks bates so i am pleased to see our tax budget has proposed to resolve this problem. however i note the approach you have all taken differs from the approach of the senate finance committee, the discussion draft and a similar bill introduced in the house. could i get you to commit to me that you will work to make this a priority and have your staff work with those of us on the finance committee to find common ground to effectively close this loophole? >> yes, of course we would be happy to work with you on that. >> thank you very much senator. senator enzi you are next. >> thank you mr. chairman. one of the things i've been concerned about in the budget is the way small businessmen will be affected by the tax increases. they talk about it being over $250,000 in revenue.
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i know a young couple from gillete, wyoming that started a restaurant that was very successful and they have expanded to eight restaurants. i went to their newest restaurant in casper and ran into one of the people that started it. he said, you know we started this with $2,000 in our pocket. we now have eight restaurants and we still only have $2,000 in our pocket. everything they need to put back into the business that we are going to stifle the economy by stopping them from putting it back into the business because we are going to make it pay to the government as-- instead. you remember in your confirmation hearing, as i mentioned small businessmen from montana had mentioned to me the need for $5,000 per new employee in order to be able to expand their business and i appreciate particularly that number being in there. there are a bunch of complications that i will work with you want to be sure that we
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are expanding jobs in order to get that. but we also need to expedite the way that they get that, and the $30 billion in small-business lending that you mentioned in your opening statement, would that be funneled through the sba, because the sba has requirements about showing you can't get money before you can get money and it takes a long time to go to the process because they don't have enough money to begin with so they are trying to get money to the people the need it the most. but in the meantime that kind of cycles the economy so is there a way to get that to the banks instead? >> senator excellent questions. let me start where you and did and i want to come back to the beginning. we are proposing both to expand with espa can dubai lows sing-- lowering the guarantee on the most successful sba programs. and, karen mills is working very hard to make sure that she reduces the streamline requirements and those programs without leaving the taxpayer
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more exposed to risk of loss, but we want to complement that by trying to make sure we are helping community banks sell the 30 billion-dollar program the president referred to is to take $30 billion of repayments we have gotten from largest institutions and put those aside to help make available to community banks committing to support small business lending. i want to come back to the point on the tax side and this is very important bill we are in the interest of what makes sense for the economy and the interest of certainty and clarity, we are proposing to make permanent the tax cuts now in place for people earning below 250 and as i said that is about 97% of small businesses, and the increase only affects two to 3% of small businesses but we are also and this is important to emphasize we are proposing to extend the expensing provisions, to expend the accelerated depreciation allowances, proposing to make
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permanent the r&d tax credit and we are proposing a very well designed additional incentive to small businesses that add to jobs and increase wages and payroll, and we think that is a very powerful package that gives assistance and clarity to small businesses on balance. so i hope we can work with you and i hope we find common ground on what we think is a very well designed powerful package of tax measures. >> thank you. i have limited time so i will switch to another topic and that is you are proposing eliminating tax preferences for the oil and gas industry and the coal industry, and that will cost jobs in places like wyoming and it will increase the taxes on the oil and gas industry in the coal industry. those will be passed on to consumers and their electricity bills and at the pump. so, i am kind of curious as to how we are going to increase the
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taxes on those industries and keep it from being a hidden tax on everyone else. and it-- related to that, there's also an abandoned mine land talks eliminated in certain cases and that is actually a lot that was passed. it was not an appropriation and that was one crafted by senator baucus and i and others. that was designed to extend the abandoned mine land tax which for 30 years had promised that those states that received it would be paid back that money, that was kept in the trust fund in what we have done is released that money. and exchange because the companies to agree to extend the tax. we got the unions pleased that we were able to take care of the orphan miners. all of those things close production stand a chance of having difficulties if we eliminate those payments.
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so, i hope we will take another look at that. >> i would be happy to work with you and make sure we are understand your concerns on how that was designed it proposed. you are right, we are proposing to eliminate a set of subsidies that now goes to the oil and gas and coal industry and those will raise significant resources over time. we are doing that not only for the reason that we think it is part of being fiscally responsible and because we think we need to eliminate subsidies in the system that go to the objectives that conflict with their broader effort to try to improve energy efficiency and reduce carbon emissions, but recognize that will be difficult. we don't think it will have any effect on prices. we don't think they will. people may disagree about that and they have been carefully designed to that sense but i understand it is fun to be difficult and hard, and we would be happy to work with you
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particularly on your concerns about the way the abandoned mine proposal was designed. >> thank you secretary and i share the program was senator enzi and i hope we can work that out. senator kerber you are next. >> thanks mr. chairman. one of the reasons i sought for so long to serve on this committee eight years actually before i.c.e. finally succeeded in getting here was i have always admired the bipartisan way the subcommittee works, and that history and that characteristic is really been tested over the last year. and, we have the opportunity as we sort of sit here for a bit and focus on jobs and job creation, we have the opportunity to go back to the tradition that helps make this effective and i think that is pretty much admired here in the senate. mr. secretary is today with mike
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enzi's brick the in today's john cornyn's brick the. i could probably offer resolution commending them both on their birthdays but i don't think that would get 60 votes for it. >> i would bet you could. [laughter] >> we could get it out of committee but i after that i'm not sure what would happen. i'm going to ask you to spend it amend or to. you about why did your oral testimony and i got a copy of vatanka steers dat but you outlined what seems like good common-sense ideas to keep job creation activity going as we move from a huge net loss of jobs a year ago to something even right now but it would seem to me tonight only enjoyed democrats support in the administration for folks on our side but the number of our republican friends. itis lead to come back and talk about the ways for you see the most potential for common ground moving the package for and why. >> well, senator we have tried
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to take what we think the best ideas from both sides in this area and i think at the core of this agenda is the recognition that businesses need to be able to grow if we are going to create jobs. and that requires that government do things that will help make that easier and not harder. and, businesses have a huge stake in making sure that we have the government investing in research and development, providing targeted tax incentives that will help technologies of the future, maker education system do a better job of educating our children. these are things that the business needs, this does rely on and i think it that core, the suggestions should have broad support. i think that, i try to say in when i began to have people on both sides of the aisle now saying they are important things. you are saying that deficits matter, tax cuts aren't free, that if we are going to do new programs we have to pay for
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them, that we have got great fiscal perils ahead but that our party right now is growth and jobs and confidence, so i think that core message again our hope is and what i think the american people want to see, they want to see their leaders coming together to bring practical solutions for the problems. will provide a set of suggestions for doing that. we don't have the monopoly of wisdom and we will be open to other suggestions but i think our test again will be what will offer the best prospect of support now to help prepare what is broken in our country, get people back to work. >> in that me ask you to be a little more specific if you will. you just said in terms of the proposals you submitted to us, whether it be, was it 30, 17.5 in loan guarantees? that small agenda but a good agenda. >> it is expensive. the accelerated depreciation,
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permanent r&d tax credit, zero capital gains for new investments in small businesses, a new job tax credit that reward small businesses that expand employment and wages. s.b. the come a credit to small community banks. those things i've heard from members on both sides of the aisle are very important to them. again. they meet that basic test for kadar pro-growth, pro-jobs and it can do them in a way that hurts fiscally irresponsible and you can let the people and say 1 dollar of taxpayer money will make a difference in the series but those are just some things. >> i would say to my colleagues on the other side, mr. chairman this are pretty good ideas, not just democratic ideas and not his republican ideas. as my time runs out mr. secretary, i've spoken to you before about another idea to free up a lot of money in student loan option dollars. they certainly conferer chipola
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of money but an estimated $60 billion provided for stimulus would not cost taxpayers as far as i can tell it time and would translate into potentially up to 40,000 jobs are more. i have raised this with you and raise it with others in the administration. thought it was a good idea and i still think it is a good idea. i would they get your feet once far. >> i want to emphasize that chairman mary schapiro and others are working on that and your right to say there's a lot of money still locked up with that and that would have the-- be happy to spend time with the to the dread of the things we can do. >> thank you hen thank you for your service. >> senator kyl. >> senator guide their first let me talk about the bank tax our feet. how many firms will pay the tax that did not directly receive t.a.r.p. funds? >> i don't think i can give you the exact number today. i would be happy to respond in writing on that. to make sure the only hits firms above $50 million in assets and again this for the firms that
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the thing for the principle beneficiaries and what we had to do to fix the financial system even though not all of them or direct recipients of taxpayer money. >> we all benefit from it indirectly. yes or no? >> did all of america in directly benefit from the fusion of t.a.r.p. funds? >> absolutely. >> good, okay, thank you and i will appreciate the number of those directly receiving the funds. the point is some entities will pay a tax that didn't directly receive the funds. those who did were there not some who were reluctant to take the funds and dector argued they shouldn't have to? >> i have read that, but i actually think a fair reading looking back is that capital was essential to all of them. one quick point senator kyl. you need to look, as i know you do, they all benefit from the guarantees the fdic provided, the emergency that they provided. >> let's just go with that them
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because what he said is he required to keep the fee on until the taxpayers are made whole. and this is almost coded, the taxes on the banks that benefited the most domtar. now, i think you were shooting at the wrong target because is it also true that the entities to come this tax will apply either have repaed or are expected to repay what they directly received in the way of t.a.r.p. funds? >> exactly. >> okay, okay. so the banks that are going to be taxed, some of them didn't receive direct funds. some contend that they didn't want to take the fund's. and in any event they have paid them back. now there was an implicit guarantee for some other folks however and a direct guarantee and they haven't paid money back that the receipt from the government. i am talking about general motors, aig, the gse's so they are the ones that haven't paid the money back. why tax entities that have paid
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the money back, but not tax the entities that have been paid the money back? >> senator, the ava, with the way the law was written it puts an obligation on me to propose to the congress how to make sure we recruit any losses, said the question is how to do that. we have the obligations of the question is how to do that and again when we designed, and this was a proposal that congress has to consider it, what we decide is the proposal targets to people that we thought benefited the most from the actions taken to rescue the economy. it is designed in a sense as a fee on risk, a fee of leverage and that will reinforce the objective. >> you could also under that same logic apply the tax to the three types of entities i just mentioned. >> well, there's no perfect way to do this. >> would have benefitted? >> of course he could cast a much more broadly.
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you could casted on every bank in the country. >> is that the effective return to the people-- after the people who have the money and those of the banks the repeat the money and should you be trying to examine the way to get the money back from the entities that i mentioned? >> we are going to work very hard to make sure that we get as much fact as we can from those entities and we are going to be remarkably successful relative to what anybody said but we are still left with that obligation. >> could you send a letter to the committee at inappropriate times indicating how you think you might be able to get more money back from the entities that i mentioned? >> absolutely. >> let me before my time is up ask you about the dollar, if you have responsibility for managing dollar policy and i believe you believe in the strong american dollar. >> of course it did in that particular phrase and commitment of policy was first read in my office at the treasury department in 1995. >> great. now, let me ask this does make the dollar stronger or weaker?
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>> senator i think you are raising their right question, which is that if the world does not have confidence in our ability to manage our financial future, then we will lose confidence. >> is and then on its way to lead to the question that issuing more government that makes the dollar weaker and that is a real problem and we need to do everything we can to work around that problem and it is probably not the best idea in the world to be taking on more debt if we want to have a strong dollar but there are other policy reasons that caused the president want to do that? >> no, i would say it that way. very interesting if you look back it was happened to the last year. when the world was in crisis, people were deeply concerned about the stability of our financial system and about the global economy, people still want to hold the dollars and hold u.s. financial assets. the dollar rose over that period of time in our borrowing costs fell even though we for taking
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exceptional actions to help fix this economy and that is because they believed in us. they thought we were going to fix it and they were counting on us to do that. now, as people had become somewhat more confident they are willing to take a risk again. that is really the story at this period of time and americans really should understand this, when the world was most at risk and most scared, people were still putting their resources in dollars. and we wanted-- we want to reserve that. .. we will risk losing confidence in our financial future and that will raise interest rates, give less investment, that would be
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bad for the american economy. >> senator? >> thank you, mr. chairman. mr. secretary, why not take $30 billion in resources that the president has outlined for small business and implement a program immediately as opposed to working its way through a legislative process? >> excellent question. the best way to say it is this, we have been trying for eight months to try and get community antr small banks to, and state capitol from the treasury under programs that many of you supported, to use that to lend. frankly, they have not been willing. they took back their applications by the hundreds, because they were worried about the stigma and the conditions. it may be that that wo because they were worried about the stigma and the conditions. it may be that would fade over time. >> i don't think they were worried about the stigma of
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t.a.r.p.. i don't think they liked for the terms of the agreement and for somebody who gave 100 cents on the dollar to aig i would think you understand what the terms of the agreement are. why not implement a program now. we have small businesses everyday that are folding. we acted with urgency when it came to the big banks but when it comes to the small banks and business americans are being told no we are not going to design or come up with a program so your right to the inspector general has said you were supposed to come up with a program last march and we haven't come up with that. >> that isn't true, senator. again, we have substantially expanded resources to community development financial institutions. we have had a program in place that is attractive on its financial terms to small community banks, some have come
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most were reluctant to come, you are right the terms matter. this isn't something that takes time, this is easy to do and it is -- it requires legislation. >> it doesn't require legislation. we've been in consultation with crs and you said you didn't need, you couldn't do the bailout to the auto industry from t.a.r.p. without legislation and when we didn't pass legislation -- >> i never said that. >> that is what happened and help was given to the auto industry by the administration afterwards, so i am sitting here with a high-tech company and my state who had a performing line of credit to buy bankamerica and order to repay within 30 days. besio took himself off payroll so they could barely survived. i have a woman who's a state employee with no debt, credit score over 800, 400 of some of ours and the home but 25 banks who denied her access to a line of credit.
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when fdic closed the bank of clark county and they basically unilaterally cut customers off of their original, we had a company columbia forcing their owner to try to fund the company out of his own pockets, restaurant, popular in that area, assets were frozen and to convert these are not people who calls the problem, the performing lines of credit and have had their capital cut right out from under them. >> i couldn't agree more what happened in this is deeply on a fair that people who were careful, prudent, responsible, and good businesses, if they -- >> where is the urgency in solving this? if we go through a legislative process here and take another 90 days who's to say in the legislative process you will have had the right criteria and terms any way? we could come out of that as the talf program and others that were supposedly to help solve this mess and we found out it
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hasn't solved the problem some my point is why we? why not come to terms right now of community banks because the big banks somebody came to terms with them and they walked away very happy customers but small businesses in america were not getting access to capital. >> we want to fix this as quickly as we can. nothing would make me happier if small banks want to come to the programs in place and take capital but they have in some ways voted with their feet, hundreds and hundreds to pack application because of a set of concerns about terms and if there is a -- it isn't hard in this way for a congress to do a quick deft surgical powerful act to reduce their concern that the conditions they faced would make it an untenable to run businesses. i don't think that is hard to do. >> i think you should take swift action to implement it immediately. if you don't get it and understand that is what american
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people are angry about, that's what happened, the administration took swift actions to help the big banks on terms some people find outrageous today and now these small banks are not getting access to the terms that would help small business. these are not unfair, these are on their justifications that people put the screws to the community banks and gave all the money away to the big banks and if we don't implement change right now we are going to lose more jobs. we can't propose a budget that talks about credits to keeping small business or right now people are cutting lines of credit to small business and leave off people. >> this isn't about the fy 11 budget and i agree about the urgency completely. >> i would urge you mr. secretary, i'm telling you they are coming into my office every day with these stories. i would urge you and the administration to act now. do not wait for legislation. come to terms with community banks on reasonable terms they
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can agree to with a broad spectrum of the light and i feel we will be on our way to getting americans back to work. >> i agree and the president agrees and we are happy to work with you and your staff on the ideas of how to do that. >> i think they share the concerns great but senator cantwell. senator nelson? >> this senator definitely does and i can tell you daily, mr. secretary, the same kind of just cries of anguish of small businesses going out of business because the banks won't lend, you go with the community banks and they say the same thing i raised with you in the budget committee six months ago which is the community bankers say we can't comment because the regulators won't let us land and when i raise this with you in the budget committee, last
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summer you said we've got a problem i'm paraphrasing an essence we are going to educate the regulators said that these banks will end the legal length of the system hasn't worked so we are now one year after you all have taken office. where do we go? >> community banks i speak to what they say to loss they've got three big concerns. one is they are very worried that in financial reform they will be subjected to additional burdens that makes it hard for them to run their institutions. not for the present but something they are very worried about and we believe we can work on a financial reform package that will be responsive to those concerns. second thing they say is our examiners and supervisors are killing us. they say after a period they were very supportive and with
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the banks were doing they are now over correcting and making it harder for them to make new loans to customers they believe and support. we hear it from everybody. i completely understand. i am the secretary of the treasury and do not have the ability to direct in effect with the supervisors to. they've made some efforts to put the clarifying guidance and did last november. the chairman said he's looking for other guidance they can do with fdic to be responsive to that concern that you're absolutely right they say the same thing to me it isn't any different. the third thing they say is we need the ability to get capital and more help from the sba. what they say is that we need more confidence and if we take that capital we are not going to be subjected to conditions in the future that will make it hard to run the banks as we are trying to navigate the pressures i completely agree they say the same thing to us and basically they have a right. >> the system is not working,
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and where the government, we are supposed to help the people by making the system work and you say you don't have control over the regulators but your boss does, your boss is the president of the united states and he has the power of persuasion. what he would say in the south is go have a prayer session with him. we've got to get the system functioning. now, let me ask you about something i think you can agree with. >> i agree with everything you said on that. >> let's make it work. we are going to agree on the fact bank executives have been getting away with these big bonuses and so forth so there's a bunch of us that are
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introducing a provision whereby banks future tax deductions on large banks that they are going to depend on responsible executive compensation and the reform would require banks to adopt policies that reward long-term performance. so extended investing pay and impleader stock, call back and arrangements for misconduct, all of those things would be required and the banks that adopt these responsible pay practices for their executives would therefore seek the loss -- si no laws and benefits and banks could continue those your response of the executive compensation practices would see
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their bank taxes rise. is that something you can get behind? >> you have the right objective, the right standard, how to encourage more prudent risk-taking and not short term risk-taking and make sure you have longer besting etc. we support that and happy to work with you and your colleagues on how to achieve that. we think a centerpiece is trying to make sure shareholders have the right to vote on the packages that there's more disclosure and transparency and the supervisors are enforcing those standards but i would be happy to take a careful look at your suggestions. >> we are about to introduce that. there's a bunch of us doing this and i would just say in passing remember, and i've talked to you until you are sick of me talking to you about this, florida and other areas of the country are different and the homeowner's mortgage is that are underwater.
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40% of the mortgagees and florida are underwater and this loan modification program that you all have started, the banks are using the trial modifications as a way to delay the recognition of loan losses and they are not making the permanent changes in loans, and our people are hurting and they can't get the mortgage is extended so they can stay in their homes and keep their lives going and keep the property values in the neighborhood from just plummeting. that would happen when they are for closed. please, we need help. >> i agree and the critical thing we have to do is make sure the temporary modifications get converted into permanent modifications. they provide very substantial
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cash flow relief to what is now more than three-quarters of a million americans but we want them to be translated in permanent modifications for the reasons you said. -- before, senator. this is perhaps the final round. he said three things you hear from banks and their concerns about getting capital to loan to small business. could you specifically address what is being done in the administration with respect to each of those three concerns? i think senator nelson makes a good point, that direct authority over the independent regulators but after all your the treasury secretary and have a credible influence in this administration so what is being done? >> the first concern is a concern about regulatory uncertainty, principally in terms of the design of the financial reform package moving through the congress and the house and i know chairman bob is working carefully to make sure
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there is a balanced approach that encourages innovation and competition, consumers have a choice. we are protecting banks from competition by unregulated entities and we are working very closely to get them to try to address those concerns. second is the concern of the supervisors. this is a tragic pattern in financial crisis. if a long period of credit that is easy and to the -- too available. the markets over correct, the banks over correct and this is a very important issue. i have -- i won't say the supervisors are worried about the too, they are trying to send a consistent signals across the arm examiners across the country for more balance and more care so they don't over correct and i think they have more work to do in that area and the third concern is about not just the way the sba program works but how to make sure they can take capital under the programs we
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described and use that for things they believe in and as senator campbell said it's not just the financial terms that matter. financial terms of the programs that were quite attractive. and there were many sensible conditions in the program, too but they're worried that the full board of conditions and the fear about the future conditions will make them will grow if they actually come. we need to be responsive in that concern because it won't work if we put something out again and now become so that is the test we have to meet and we are working closely with many of your colleagues including senator warner and senator it landrieu on ways to adapt this program so that they will actually come and use it to expand small business lending. >> other questions on health care to explain how the health care reform will help businessmen. >> you can do this better than anyone in the country. i think -- >> helpless get the deficit
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down. sprick the long-term fiscal costs are pearly to the eckert rarely durbin on this by the aging population by what is happening to health care cost. the only way to reduce the long-term deficit is reduced the rate of growth in health care costs. this is not just about the future. the system we live in today isn't fair and it is expensive to small businesses. they are the ones that pay more for those that pay for health insurance. they are the ones facing the most rapid growth and they bear a substantial part of the hidden cost in the systems today. we are not helping them if we leave the system in place and we are going to be left with a worse fiscal problem and risk of eroding confidence to manage the problem if we can't demonstrate we have the capacity to put reform in place at jinja people have health care and reduce the rate of growth and cost. it is good policy for the private sector and the business community for the country to do things the will reduce the
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growth of cost in health care. estimate have you given thought to address in corporate governance? shareholders in many cases would as a practical matter and the committees often are handpicked by the top person and i guess another similar question the corporate governance, laws, degree, what ways are you looking to address that? >> i agree with you part of what field in the system is a failure of the board of directors of financial institute exercise their responsibility and you are not going to have firms running in the interest of shareholders over the longer term if you don't have boards of directors that understand the business of banks and are able to exercise instead of constraints and
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checks and balances what management is doing. one of the most important things we can do is improve disclosure to the public and investors much as the dog compensation practices brought risk the firms are taking the will help give the market shareholders a bit more leverage and influence over this decisions and help the boards of directors to a better job but i think the basic responsibility of the government particularly in the financial sector is to set and enforce better design constraints on risk-taking. we can't run a system based on the hope shareholders will be able to act in the long term interest that the boards of directors will always be wise and knowledgeable about the future. it is the job of the government to make sure there are constraints in place, sensibly designed to eliminate risk taking by those institutions because there will be times when the interest of the management and the boards and shareholders may seem to conflict with what is in the broader interest in the stability of the financial system. >> thank you.
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my time is expired. senator grassley. >> i have two questions. one on education and tax policy and the other on questions of oversight we haven't gotten the documents from you. on education, i think i can say with confidence that every senator is concerned about high inflation and cost of education. chairman bachus and i included a package of education tax relief provisions in the bipartisan 2001 tax relief bill because that concern recently i introduced legislation to make that package permanent and i replaced the administration budget includes similar measures. the administration budget also includes an expansion of higher education entitlement provisions enacted last year. the provision was aware of the cap on state loan payments from 15% to 10% of graduates in come. and then in 25 years instead of 20 years has would be expected. this new entitlement was very
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popular but some experts worry about to risks from exposure of the entitlement. one risk would be the expected interest rates and the second risk would be a continuation over a three-year trend where higher education costs inflation exceed general inflation. as a manager of federal debt by assume you ought to be and are concerned about the potential of on the limited federal liability. since 2008 through this committee's oversight functions i've been reviewing the activities of universities with large endowment funds for instance harvard endowment was last valued at about 26 million just about the size of the gates foundation and of course that is a private foundation. our hearings and investigations found a bit of policy paradox while these universities are accumulating large endowments they are at the same time raising tuition and other expenses at alarming rates.
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parents and students spare the cost of that burden. it doesn't make sense to have tax favored endowments and tuitions of both growing geometrically while some of these institutions voluntarily agree to increase financially and there's no fixed policy to protect middle class families from future tuition hikes. so my question, with everyone concerned about rapid inflation and higher education costs aside from proposing more intimate what is the administration do to provide incentives to colleges to keep costs down and i ask this question because parents and students are on the hook and under this budget the federal government would be on the hook to a greater degree as i read the budget. >> senter i thought you say to the challenge exactly right. i'm not sure, i can say with confidence i don't think we found the best mix of policies to try to give americans
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confidence they are not going to see the same rate of increase they've seen in the past. we do think it is good public policy to make higher education more affordable to americans. we want to make sure people have the chance to go to college and that we are generating a larger number of college graduates and a share of our population in the future. that is good policy. we think there's a high return on that happy to hear door ideas and listen to you and work with you on ways we can help, sensible ways we can let future rates of growth of tuition. >> congress wouldn't have to pass a bill of the president would give equal time to helping middle class families. as he's doing, java owning banks and wall street etc. and there wouldn't be a disagreement with me on his part for doing that if he would do the same thing with some of our major universities or all of our
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universities for increase in tuition. let me go on. in december i ask you for details regarding the 160 million-dollar aig repayments paid in 2009 and the 198 million in aig retention bonuses planned for march of this year. some of the aig executives promised return 45 million of the 09 bonuses but that didn't happen. nevertheless they still plan to pay 190 million bonuses this year. last week i received a letter not from you with from kenneth feinberg, a special master for t.a.r.p., executive compensation, he said you asked to reply on your behalf and he offered to briefly but did not provide the documents i requested. the offer of a briefing is appreciated but first i need the documents. this is especially frustrating because i read in the press that aig offered to pay the 2010
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bonuses early by the end of this week i've been told rather than march aig is reducing the of the bonuses by ten per cent rather than collecting on broken promises some executives made to repay the 09 bonuses. the terms of the bonus is exactly the sort of information that should have been provided to the congress earlier in response to my request. we shouldn't have to read about these things in newspapers only to have it a done deal. when will i receive the documents i requested on my december 24th, 2009 letter and why is treasury allowing aig to pay bonuses again this year? >> senator, i welcome it to you we will work as quickly as possible to make sure you have the information you need to provide the oversight this committee has to provide in this issue and all other issues and i just want to emphasize kenneth feinberg who i appointed to make
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sure we are fixing what happened in compensation structure for this set of institutions is working hard on just the concern you raised and i'm sure he will be able to provide a little more detail in public but on the interim i will make sure we are providing the information that you need and to be responsive to your questions on this specific issue. -- before, mr. chairman. i want to go back to something you said earlier about the fed on a oversight on aig. you said that they did not -- but didn't have any authority or responsibility. >> but they did have authority on almost every aig major counterparts. not all. is that correct? spec is not quite correct
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because a very large number of aig counterparties on the target if transactions were reform banks. >> i agree -- >> i'm talking about the united states of america counterparties >> many of those countries -- >> it's important to recognize is the fed under the laws of the land had authority over institutions called banks holding companies and aig had tens, hundreds, thousands of counterparties the one on bankholding companies. i want to go back to something senator kent rell was talking about because if i have heard it once i heard a 100 times from my community bankers, and it is the fed regulators that have stopped the flow of money out of the
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community banks to the small business person for fear of the federal regulators coming in and consuming the bank were stopping all lending to the people who absolutely need that lending. i'm talking about small businesses that have 50 jobs and small businesses that need a line of credit and on down the line. and i am telling you it is almost unanimous. it isn't totally but it's almost unanimous with community bankers in kentucky. >> i've heard the same thing and i think in many cases i'm sure those concerns are justified and i think that you are right to emphasize and you need to keep this message clear to the supervisors and examiners they need to make sure they are not making this problem worse. it's very difficult as it is. >> both federal and state examiners. the state examiners are scared to death they are not going to be as tough as the federal
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regulators. some of the examiners, this is what happens in a recession like this all of them are scared and looking over their soldier to the commercial durham worried they're going to get killed and was their job if they are too soft in this entire matter and many are concerned they were too soft before and of course the risk is the over correct. >> mr. secretary i want to follow on something you said at the house oversight committee hearing last week. you were to support the decision to pay aig counterparties off at par. no doubt about that. and that he played no role in the decision to cover up those payments. what i want to know is if you thought then and think now it was the right decision to keep that information of those payments private. >> that is a very good question but let me say what i said to the colleagues in the house to read when the fed disclosed the information in march of 2009, it looked like to me it was the right thing to do. i thought it was the right thing
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to do at that point and i think it is reasonable for many people to say looking back now it was right then why not earlier? but this is a very important thing for me to say. i did not stand in their shoes at the time and i have enormous trust and confidence in the people that made the decision and their experience and judgment and i don't know how to say it different than that. it was the right thing to do in march of 2009 and i understand why so many people would say it was right then why not earlier but that's hard for me to speak to not sitting in their shoes. >> then do you think it is appropriate for one federal agency or regulator to negotiate with another federal agency on behalf of somebody who they regulate? because that is what happened here. you're new york fed lobbied the sec to keep the information secret that normally would have been made public.
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>> i cannot speak to the details of that question and i don't think that is an accurate characterization of actually what happened in that case but that is something that you better address to the fed and the fcc believes kennedy think firms that received government assistance should be less transparent than public firms that do not receive it? >> absolutely not, and senator, one of the most important reasons why our system is more stable today is because we forced and compelled a level of disclosure and transparency on our largest institutions about their risk of loss and recession than they or any foreign competitor -- >> mr. secretary, your inspector general on t.a.r.p. would disagree with you 100%. i read his report. >> on this question i don't think he would. what made it possible to put up the financial fire with very little cost to the taxpayer is we made it possible for private capital to come in and pay us back and the was only possible
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because we force a level of disclosure in a transparency of these institutions that went dramatically beyond what existing regulation required and the was a sensible thing to do. >> you have red the aig inspector general's report on t.a.r.p.? >> of course and spent time with his colleagues helping him work through and understand the choices we made. >> just so i know that you read it. thank you. >> thank you. following up on this issue with a small community banks and the examiner issue as you were calling it, i will come back to the regulatory uncertainty issued on the examiner issue, isn't the issue that capital requirements and leverage ratios were changed by the fdic? basically saying you have to have more capital and basically at a time where would you get
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capital? where would you get capital? nobody could get capital so they did is basically started canceling loans to individual businesses. that's where they got the capitol ratio to come back. they started singing to small-business you don't have your alone anymore, and so why not come back and change, lower the cost of the t.a.r.p. money through dividends and warrants, why not just that and and it just the viability. we were basically saying to people okay you can have t.a.r.p. money if you can prove that you are viable without t.a.r.p.. >> excellent question and you are right the community banks now have a hard time raising capital and that is part of what is forcing them to shrink part with their getting from examiners and i'm very supportive personally and if you just look what the president announced october you can see i'm trying to insure the economic terms in terms of dividends and warrants and etc are more economically attractive. i completely agree with that.
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i completely agree with that. >> what about the viability? >> let's just sort of step back and think about it this way. banks in the country particularly small banks are still under enormous pressure and we have to be careful we are using in the assistance we provide as carefully as we can as wisely as we can. the viability test that exists is trying to make sure it is going to institutions more likely to use it to expand. if you use it on the firms that don't meet an objective standard of liability then there's a risk not just that to put taxpayers' money unnecessarily at risk but it won't be effective. >> what about liability with t.a.r.p.? >> we have looked a variety of different ways to make sure under the current system you can count the t.a.r.p. dollar you get into words -- towards meeting and i have to go back and make sure this is right,
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meeting the viability. we have to see it differently if you raise some capital as part of the t.a.r.p. money you can count that to help me the viabilities standard but again what we are trying to do is make sure that the dollars that we give don't push the tax payer unnecessarily at risk and they go to banks more likely to use those dollars to expand credit and we want to get the balance perfect paradigm of pleasing supervisors got the balance perfect and in the system we have in place we leave it to the supervisors to make the broad judgment about liability. we don't make the independent test because it's hard for the treasury to do is to go bank by bank and make that tested by the late. >> the criteria is part of the challenge along with making it a more affordable program and again i cannot emphasize enough the anchor in america when people get 100 cents on the dollar for something and then these people are basically cutting them out of capital because of these requirements. >> i agree about that but i want to be careful i didn't miss state this.
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i will make sure i describe for you in writing exactly where the current liability test works and you are going to hear more details on small banks and the cd fy some suggestions how we can mitigate their concern. >> i could not urge the minister asked dee dee to act without legislation. on the regulatory uncertainty, one thing that concerns me greatly about the proposal is that on this issue of separation and in commercial banks and investment banking the definition of trading is going to be narrowly defined as i think it was the economist or one of the publications recently came out saying it was going to be a door to massive loopholes. how is that going to work? >> is a hard thing to draw that on a way that is sensible but i agree with your concern but i think it is something we can solve and my colleague has testified later today for the
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banking committee and he will have a chance to talk through some of the complications we've been drawing that line. some even the chairman of the cfo goldman sachs says it will be difficult to distinguish between the trading and the trading for the client for hedging. >> that's right -- >> if he's saying it is going to be difficult -- >> you have to start by recognizing the reality it is difficult that is what reform is important. the objective which right to do is make sure we have clear constraints on risk-taking by the large institutions so they don't bring us to the edge of collapse again and part of that is making sure they are holding of capital against the risks but part of it involves tough constraints what they can actually do. but we have to design those ways the sensible and careful and recognize the reality of the ways shortages are run. >> i think you know i support a more clean approach. thank you, mr. chairman.
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>> thank you, senator and secretary geithner. clearly we have huge challenges ahead of us, and i'd think you can tell the committee wants to work with you. it is a two-way street. no surprises but tell us what you're working on and let us know because we want to help and get those jobs. i also urge you -- it is about urgency. there is a sense that perhaps there is not sufficient sense of urgency in the administration, but getting assistance for small businesses and community banks to get that program working better. >> we share that sense of urgency, the president does, and we want to make sure we are doing things that board and make a difference. where we don't need legislation we won't ask you to do something. that is advisable. we need it and need to work quickly on it and i don't think
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this is complicated. it does not need to take a lot of time. >> thank you. we've got work to do. thank you for coming. the committee is adjourned. [inaudible conversations] >> [inaudible conversations]
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[inaudible conversations]ve
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chairman paul volcker testified at new financial industry regulations. the plan announced by president obama would prevent commercial banks from the hitting like hedge funds and other private financial firms. mr. volcker is the chairman o the president's economic recovery of eis record. he stranded in deputy treasury secretary. the senate banking committee hearing is two and a half hours. >> the committee will come to order and let me welcome our distinguished witnesses this afternoon and the audiences here and my colleagues and i'm sure there will be more coming in. this is a little out of the ordinary. normally hearings like this we conduct in the morning but i
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know that chairman volcker had a conflict in schedules and we are grateful to you, mr. chairman for accommodating us this afternoon and meeting with us here and we welcome you back to laws trey good job of the treasury and we are honored to have you here. we are going to have a hearing on thursday to follow-up and hear from industry and other people talking about these ideas that have been proposed by the administration particularly by chairman volcker as we are grateful for being with you this afternoon. we will do is make a brief opening comments myself and turn to senator shelby for opening comments he may have and then following what i now call the corker pool we will go to our witnesses, some members feel feel compelled to want to be heard before they are heard and then we will accept any and all supporting documents and information worthwhile for the committee to have and then began a line of questioning and depending upon the number of people here we will try to make enough time available as we have a thorough discussion of these
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ideas. and with that, today's hearing is entitled providing high risk investment activities by banks and bank holding companies. and again, chairman paul volcker is here for the witness so i think all of you for joining. we meet as we have over the past number of months in the shadow of a financial crisis that nearly toppled the american economy. is worth repeating again the cost of the greed and recklessness that brought us here over 7 million jobs in the country have been lost. their retirement plans of millions of americans have been dashed, trillions of dollars of household wealth in the gdp are gone and obviously all of this regardless what your political party is or affiliation and we cannot allow this to happen again. the obama at patrician has proposed bold steps to make the financial system less risky and we welcome those ideas. the first would prohibit banks or financial institutions that contain links from owning,
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investing were sponsoring a hedge fund private equity fund or any proprietary trading operations unrelated to serving its customers. the president of the united states called this the volcker ruling today chairman paul volcker himself will make the case. i strongly support this proposal and i think it has great merit. the second would be the cap on the market share of liabilities to the largest financial firms which would supplement the current caps on the market share with their deposits. i think the administration is headed in the right direction with these two proposals. i know the timing of them and how they've been proposed and a critical time when we've been deeply engaged on this committee. i'm proposing ideas to reform the financial service sector raised the eyebrows and other considerations by people but i think we need to get past that if we can and think about the merits of these ideas and how they would work if they could in fact be put in place so i welcome the conversation we are going to have today and the remainder of this week on these
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issues. these proposals deserve our serious consideration and so today we will hear from the chairman and deputy secretary of treasury and on thursday we will hold another hearing with business and academic experts. these proposals were born out of fear that a failure to act would leave us vulnerable to another crisis and frustration at the refusal of financial firms to rein in some of these more reckless. i share that fear and frustration as well and i strongly oppose those who would argue the boldness of these proposals is out of scale with the need of reform. we need to take action and we must consider scaling back the scope of activities banks may engage while they are using deposits so today i look forward to hearing how these proposals may be most effectively applied protecting consumers or our economy and also as a doubles at the get why these ideas may not work and would risk they may
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propose of adopted. some of them objected to the volcker rules on the ground it might not have prevented the crisis with these particular limits are on the lives. i think those objections are worth discussing and i am interested in getting the witnesses and colleagues the chance to raise these items and to have the kind of vibrant robust debate and discussion about them but we must take steps to change the culture of risk-taking in the financial sector including the management and compensation incentives that drove so much of the bad decision making. i applaud the administration's commitment to scale back risky behavior on wall street and thank chairman volcker and deputy secretary for joining today to share their thoughts and ideas on these proposals and i look forward to working with them and of course my colleagues on this committee, democrats and republicans as we have been working in the past weeks and months to fashion a reform package that will allow us a step forward on a bipartisan basis here a consensus bill we
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can bring to our other 87 colleagues in the senate for their consideration ultimately a conference with the other body and ultimately of course the signature of the president of the united states. we have work left to be done so this is an important one and we welcome you today to share your thoughts and ideas on these proposals. senator shelby. -- before. chairman volcker, welcome again to this hearing. i think one of my first few weeks on this committee was to testify when you're the chairman of the federal reserve that was a few moments ago as we both know we welcome you back. the financial crisis has had a devastating affect on our economy. millions of people have lost their jobs. trillions of dollars, household wealth have evaporated and the american taxpayers are on the hook for nearly all of it. we cannot allow such a calamity to occur again. for this reason and others, i'm willing to consider any proposal
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that will strengthen our regulatory framework and help our economy including the president's latest recommendations. that is why i joined my republican colleagues and ask for this hearing. today we hope we can gain a better understanding of the specific activities the would be banned under the president's proposals and the risk associated with those activities we also need to understand clearly the cost and benefits associated with the plans proposed changes. finally we need to determine whether we should incorporate the president's latest ideas into the current regulatory reform or whether they can be considered on a later date. i believe the main goal today is regulatory reform must be to eliminate taxpayer exposure to predict risk while establishing the strongest and most competitive and economically efficient regulatory structure
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possible. achieving this goal will involve ending bailouts, addressing the too big to fail, reorganizing our financial regulators, strengthening consumer protection and modernizing derivatives regulation among others. putting this together in a legislative package is a very difficult task. yet as difficult as the task maybe i remain committed to considering any concept that may help achieve our overarching goal. that said, however, i am quite disturbed by the manner in which the administration has gone out introducing the latest proposal for considerations. we are more than a year into our deliberations on regulatory reform. the house has already completed action. regrettably the administration waited until a little over a week ago to bring this sycophant concept to the table. seven months after the administration introduced broad
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recommendations to president characterized, quote come sweeping reform not seen since the great depression. this concept that we have before us today was in the debate. i applaud chairman called for giving the opportunity to begin a thoughtful process regarding the president's latest notions on regulatory reform. i hope however this is not an indication that the administration intends to substitute thoughtful analysis with whatever pos is well on a given day. this is too important, too complex subject to be the subject of the de -- debate witness testing. i hope chairman volcker was this and will continue to work with us. mr. chairman, last fall you offered a regulatory reform and while i supported your policy aim i questioned the means at that time. in response you rightly slowed the process to consider more carefully how to accomplish our
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mutual objectives. i believe we've made tremendous progress in that regard. whether we ultimately reach a consensus remains to be seen but we are working at and abs i have said many times we must get it right and this is a goal i know we both share. thank you. >> thank you. any members want to be heard on this manner to the commander i made that offer before. thank you -- any comments at all obviously we will include that. members may have opening statements included in the record. chairman volcker again i think most people know you but for the sake of the hearing, he currently serves as the chair of the president's economic recovery of fis record and also heads of the group of 30 which has been engaged international and financially regulation and released a very influential report on financial reform and prior to this time as he called on this committee announced no working in the investment-banking he served as the chairman of the federal
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reserve 1979 to 1987 under president carter and reagan. kneal serves as the secretary of the treasury and having been confirmed by the senate in may of this past year prior to resuming this position he served in the administration as deputy assistant to the president and counsel for the president for economic policy. prior to that, the deputy secretary wolin was of the hartford financial service grant served in various positions for the clinton administration. very impressive records by both of you. chairman volcker again, welcome once again you've been before this committee on complications over the many years of the past 30 years and we welcome you here once again. you've got to turn that microphone on the. >> it may be a familiar location but i forget to push the buttons. i do appreciate this unusual scheduling of the hearing but i did have a conflict coincidently
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with the british parliamentary committee considering financial reform in britain, it will touch both sides of the atlantic today with your rescheduling and i appreciate that. let me say to make a very simple statement because i think there is some confusion. a lot of this issue we are talking about today evolves around proprietary trading and some people say this a big risk and a small risk what ever. it certainly is a risk. everything the banks do is a risk. this is not a question in my mind of what is there greater risk. it is the question of what risks are going to be protected by the federal government through the safety net, through deposit insurance and federal reserve and other arrangements? and my view is commercial banks have an essential function in the economy and that is why they are protected but we don't have to protect more speculative activities to an inherent function of commercial banking
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and we shouldn't extend the safety net extent the taxpayer protection to proprietary activities, so that is a very short summary of at least one of the issues here. as you know, the proposal that the president set out if it was enacted would restrict commercial banking organizations from certain proprietary speaker the activities. the first point i want to emphasize is the proposed restriction should be understood as the broad effort to deal with structural reform. it is particularly designed to help deal with the problem of the too big to fail but senator shelby just emphasized. too big to fail in the related hazard looms so large as an aftermath of the emergency rescues of financial institutions bank and non-bank unlike in the midst of crises. this statement assured us that
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appeared in the press sunday to try to point out the larger perspective. the basic point is the has been and remains strong public interest in providing a safety net. particular deposit insurance and the provision of liquidity and emergencies for commercial banks carrying out the essential services. there isn't however a similar rationale for public funds, taxpayer funds protecting and supporting essentially proprietary speak with the activities. hedge funds, private equity and trading activities unrelated to the customer needs and related to the continuing banking relationships should stand on their own without the subsidies and plied by public support for depository institutions. of those quintessential activities has become a natural part of investment banks and a number of those firms each
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heavily engaged in trading and other proprietary activity failed or were forced into publicly assisted mergers under the pressure of the crisis. it also became necessary to provide public support by the federal reserve, the federal deposit insurance corporation or the treasury to the largest remaining american investment banks. both of which assume the banking license to facilitate the assistance. the world's largest insurance company called up in a huge portfolio of credit-default swaps quite apart from its basic business was rescued only by the injunction of many tons of billions of dollars of public loans and equity capital. not so incidentally the huge financially of one of the largest industrial companies which also extended the privilege of the banking license and granted large assistance contrary to the longstanding public policy against combinations of banking and
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commerce. what we need are the authority message to minimize the eckert of the failures have the basic fabric of financial markets. the first line of defense along the lines of administration proposals and provisions in the bill passed by the house last year must be the authority to regulate certain characteristics of systemically important non-bank financial institutions. the reason to need is to guard against excessive leverage and insist upon adequate capital and liquidity. it is critically important those institutions, its managers and creditors do not assume it public rescue will be forced in the type of pressure. to make that credible, there is a clear need for a new resolution authority and approach recommended by the administration last year and included in the house bill.
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the concert is largely supported internationally. the idea is with procedural safeguards a designated agency we provided authority to intervene and take control of a major financial institution on the brink of a failure. the mandate is to arrange a liquidation merger in other words euthanasia not a rescue. apart from the limited number of such systemically significant on bank institutions there are literally thousands of hedge funds, private equity funds and other private financial institutions actively competing in the capitol markets. they are typically financed with substantial equity provided by their partners or by other sophisticated investors. they are and should be free to treat, free to invest and free to fail. management and stockholders are
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partners should be at risk come able to profit handsomely or fail entirely as appropriate in a competitive free enterprise system. now i want to deal with specifically as i can questions that are reasonable the president's recent proposal. first a strong international consensus on the proposed approach would be appropriate. particularly across the few nations posting large multinational banks and active financial markets. that needed consensus remains to be tested however judging from what we know and read about the attitude of a number of responsible officials and commentators i believe there are substantial grounds, very substantial grounds to anticipate success as the approach is understood. second, the functional definition of hedge funds and private equity fund is the commercial banks would be forbidden to


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